Personal Finance

Social Security’s funds have a new, later-projected depletion date of 2035. How Congress may shore up the program

Key Points
  • Social Security's combined trust funds are now projected to be able to pay scheduled benefits until 2035, a full year later than was projected last year.
  • But if nothing is done to shore up the program, just 80% of benefits will be payable at that time.
  • Congress may choose to make select changes to repair the program. Here's what may be on the table.
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The clock is ticking for Congress when it comes to shoring up the Social Security trust funds, according to an annual report released on Thursday by the program's trustees.

Both Social Security and Medicare face long-term financing shortfalls, due to the fact that those programs will grow faster than gross domestic product through the mid-2030s, according to the report. One key reason for that is the rapid aging of the U.S. population.

But this year's report is slightly more optimistic than the one released in 2021.

Social Security trust fund good through 2034, SS Disability fully funded for 75 years
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Social Security trust fund good through 2034, SS Disability fully funded for 75 years

The program's combined trust funds will be able to pay all benefits on time until 2035, one year later than projected last year, according to the report. At that time, the fund's reserves will be depleted, and the program will be able to pay 80% of scheduled benefits through tax income.

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The Old Age and Survivors Insurance Trust Fund, which funds retirement and survivor benefits, will become depleted in 2034, also one year later than forecasted last year. At that time, 77% of scheduled benefits will be payable.

The Disability Insurance Trust Fund which pays disability benefits is now no longer expected to run out within the 75-year projection period. Last year, estimates indicated it would only be able to pay full benefits until 2057.

The new estimates for the program's funds come as experts have yet to reach a consensus on the impact the pandemic will have on its future, according to the report.

"We currently assume that the pandemic will have no net effect on our long-range projections," a fact sheet accompanying the report states.

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Americans who rely on monthly checks through the program — and those who plan to — can rest assured that the program is not going to vanish, according to Social Security Works, an advocacy organization that promotes expanding benefits.

But the pressure is still on Congress to find a way to make it so benefits continue to be paid in full and on time past those projected depletion dates.

Lawmakers generally have a choice of raising taxes, cutting benefits or a combination of both.

These are some of the possibilities that could be on the table when leaders take up the issue.

The payroll tax cap could be raised

Rep. John Larson, D-Conn., and other lawmakers discuss the Social Security 2100 Act, which would include increased minimum benefits, on Capitol Hill on Oct. 26, 2021.
Drew Angerer | Getty Images News | Getty Images

Social Security is funded through payroll taxes, which in 2022 apply to wages up to $147,000. Both the employer and employee contribute 6.2% of wages up to that income threshold, which is adjusted annually.

That could be changed so that higher income workers pay more into the system.

One proposal — the Social Security 2100 Act, put forward by Rep. John Larson, D-Conn. — calls for reapplying the payroll taxes on earners making $400,000 and up. President Joe Biden also advocated for this change during his campaign.

The retirement age could go up

In 1983, Congress raised the full retirement age to 67, a change that is still getting phased in today.

Some experts say bumping up the retirement age now is not out of the question, especially as many people work and live longer.

This change may be gradually phased in. Adjustments could also be made so those who are forced to retire at the earliest age of 62 don't see a drastic reduction in benefits.

Still, advocates for expanding the program generally oppose this change because it is a benefit cut.

Taxes on benefits could change

Some beneficiaries pay taxes on their benefit income.

That applies to those who have combined income above certain income thresholds. Combined income includes half of the Social Security benefits plus the adjusted gross income and nontaxable interest.

Individuals with combined income between $25,000 and $34,000 will pay income tax on up to 50% of their benefits. That also goes for couples with combined incomes between $32,000 and $44,000.

Individuals with combined incomes of more than $34,000, as well as couples with more than $44,000, may pay tax on up to 85% of their benefits.

Because those income thresholds are not indexed, more people over time are paying taxes on their benefits.

Congress could raise those income levels to make it so fewer beneficiaries who are close to those cutoffs are taxed. It could also make it so higher earners pay more levies into the program.

Some benefits may become more generous

Social Security reform could also be an opportunity to increase benefits in some ways.

Notably, Larson's bill calls for a higher minimum benefit for lower-income workers. In addition, he also advocates for an across-the-board benefit boost of about 2% of the average benefit, among other changes.

The National Committee to Preserve Social Security and Medicare on Thursday called for urgent action to strengthen the program's finances and affirmed its support for Larson's bill.

"Poll after poll shows that, across party lines, the American people want the kind of improvements in Rep. Larson's bill, not harmful benefit cuts," Max Richtman, president and CEO of the nonprofit, nonpartisan organization, said in a statement.